The 2012 Hornets Offseason from a Salary Cap Perspective

Not only does he make trades, but he makes trades so he can make trades.

He makes two or more somethings out of one nothing, while most General Managers just swap nothings, or get something for nothing at best. Typically, the likes of this are restricted to quantum mechanics, philosophy, and tabloid journalism. Sticking with the former for context, some of the somethings fall into black holes while the other somethings make something completely different shine that most thought would not (a quantum mechanic will recognize this process). Practitioners of all three can learn a thing or two from Dell’s refutation of ex nihilo nihil fit.

This offseason, Hornets fans were treated to a late night double feature picture show of this latter variety of trades. They left some Hornets fans scratching the big V on their heads at each of the times, but the faithful were rewarded in short order when the last trade in each series hit the wires.

Like all presents, these seeming gifts from other teams are fruits of seeds sewn in the past. We draw a line in the sand on one glorious day, with the sun shining brightly in and on New Orleans, completely distracting from the gathering storm, currently steered by, but soon poised to change, the trade winds in the NBA.

Lottery Night

Beyond the obvious excitement of winning the 2012 NBA Draft Lottery, this night clearly defined the centerpiece of this team for next several years and defined the salaries the Hornets would pay to their first round draft picks. The scale salary for those picks counts against at team’s salary as soon as the pick is made. So, draft night chewed up some cap room.

It was worth it.

Besides the committed salaries and the first round draft picks salaries, the team also had numerous cap holds to deal with, including the one associated with restricted free agent Eric Gordon. His $9,577,960 cap hold had to be maintained in order to keep him as a restricted free agent. Taking into account other cap holds and exceptions, the Hornets were well over the cap. If they were not planning on signing free agents to large deals or making unbalanced trades, this cap hold did not really affect their flexibility. That is business as usual when living life as a team over the cap.

They could renounce the rights to all of their Bird players, except Gordon, to get $5,229,036 in room to offer to a single player, an amount comparable to their Mid-Level exception, or $7,223,452 in room for a trade into cap space, counting the $100,000 overage allowed per the CBA. So keep the rights, use the MLE, move along.

Right?

Wrong.

Okafor and Ariza

In the first move of the Hornets’ offseason, Dell traded Emeka Okafor ($13,490,000) and Trevor Ariza ($7,258,960) to the Wizards for Rashard Lewis’ untradeable contract ($22,699,551), which they had ironically received in trade from Orlando. I don’t think that contract was untradeable, for the record. Neither does Joe.

This deal was close to an even match on salary, with the Hornets taking on $1,950,591 in this deal. Lewis, however, has not been performing up to his contract to say the least. Thus, this seemingly left the Hornets paying more for less talent.

Seemingly.

Rashard Lewis’ contract was not fully guaranteed. The Hornets waived him, paying him the mere sum of $13,765,000. When Lewis signed his veteran minimum deal with the Heat, an additional $294,993 was removed from this figure as “set-off,” leaving the cap hit at $13,470,007.

This is a whole lot of money to pay a man to play for another team when you could be paying people to play for you. It can certainly be argued that Emeka and Trevor are not worth $20,948,760. But are they worth the $7,278,953 difference? Certainly.

So why do this?

There are a couple of reasons.

One reason is the future salary due to Emeka and Trevor that was avoided by trading for the expiring and non-fully-guaranteed contract of Rashard. The savings in 2013-2014: $22,214,780.

Another is cap space this year. Real cap space. Not the cap space that really just equals the owner paying less for less wins but with no additional flexibility. Real cap space is a valuable thing, as will be demonstrated in the following sequence.

Before we get to that, let’s look at this cap space `purchase’ from another angle.

Prior to trading Ariza and Okafor, the Hornets had $20,748,960 in committed costs in those players for this season and $22,214,780 for next, for a total of $42,963,740. In order to improve this situation, the Hornets made the Lewis trade, but what were their other options?

Trading one or both of them for a second round pick, even conditional, could have been an option. Given that an effectively expiring Wesley Johnson had to be sent with a first round pick to be moved, these scenarios should be discounted, however likely they may have seemed at the time. It could be countered that the Johnson trade does not apply since Minnesota was in a clear mode of dumping salary. That would be silly, however, since that is clearly the function of the proposed moves. One point, LaRusso.

Either player could have had the Amnesty provision used on them. Using it on Ariza results in less room than the Lewis deal, so we ignore this. Using the provision on Okafor creates more room this year (by $6,211,047), but less room next year (by $7,727,280), all for an additional $29,493,733 compared to the Lewis move, less any amount Okafor would get on the Amnesty waiver wire.

The argument could be made that Dell could use that space this year to work some magic to move Ariza, lowering the additional costs by $14,986,240 if it is done this offseason, but there was a risk that this could not be done, leaving Benson would have been for most of Okafor’s $29,977,500 no matter what. As fans, we can disregard the costs to the owner, but Dell has to at least consider this when presenting options.

In the case of the Lewis trade, the dead salary is limited to this year, and that dead salary yields $2.19 in cap space per dead dollar, taking both seasons into account. The Amnesty option runs at about $0.65 on the dollar, with a small improvement if Okafor is picked up. If Ariza could be dumped for a pick this offseason, the efficiency rises to $1.54 on the dollar.

Looking at these options, Dell made the move that made efficient use of the resources available to him, gave extensive cap room this offseason, and still allowed an extensive overhaul of the roster, as we shall see now . . .

Ryan Anderson

Following the Lewis trade and waive, the Hornets had $11,560,781 to offer to a single player, and $13,081,953 in room to work a trade into cap space, overage included. They took advantage of the latter, trading Gustavo Ayon ($1,500,000) for restricted free agent Ryan Anderson in a sign-and-trade ($8,700,000 year one, $8,500,000 average over four years).

This trade clearly fails to meet the guidelines of the Traded Player exception, as the Hornets took in well over the allowed $100,000 more than 150% of outgoing salary. This was allowed because the Hornets acquired Anderson using cap space.

The beauty of life under the cap.

This concludes the first Act in the trade play. Grab some popcorn. The next Act is a doozy.

Jarrett Jack

Following the Ryan Anderson trade, the Hornets traded Jarrett Jack and his expiring $5,400,000 salary to Golden State. The manner of reporting made it seem like a throw-in at the last minute, and it very well may have been. In the deal, Jack went to Golden State; Edin Bavcic’s rights come to New Orleans though he never will to get a basketball check; and Darrell Finesse Watkins, his fantastic middle name, and his nonguaranteed minimum deal went to Philadelphia, where he was waived days later.

This deal added $5,400,000 in cap space, sending out the only remaining player eligible for the Amnesty provision, receiving only the rights to a player who will likely never play in the NBA. Thus, it has the appearance of a pure salary dump couched in the trappings of freeing up minutes for younger players.

Watkins seems to have been added to the deal since Philly was looking for a center. Once they acquired Kwame Brown, they cut Watkins. Him being traded from the Hornets means he can not return to the team until the 2013-2014 season.

Brad Miller

Following the Jack trade, Hornets fans were on the lookout for the next move, especially after seeing how the Ryan Anderson trade came about. The next move, however, failed to satisfy, as it was for the retiring Brad Miller at the mere price of $848,000 wrapped in a $5,104,000 clothing, with the difference being nonguaranteed.

Minnesota was willing to send these picks out since they were clearing salary for Andre Kirilenko and comrade.

Second round draft picks were also shuffled in this exchange, so, on its face, this deal appears to be a purchase of second round picks, with the additional bonus of maybe being able to use Miller’s salary in trade. Since he was acquired into cap space, his salary could be aggregated in a trade, just as that of the recently sent Jack.

So the net of these two moves is a potential salary dump and the acquisition of second round picks, with short-term cap space increase of $296,000, leaving them with $4,656,781 to offer to a single free agent, $6,177,593 to use for trades into cap space.

The picks are not listed here since they return home later (likely). No sense in confusing this stuff more than it already is.

Eric Gordon

In the meantime, Eric Gordon signed the Phoenix offer sheet for a maximum deal, and the offer was matched by the Hornets. When this happened, Eric’s $9,577,960 cap hold was replaced by his first year salary of $13,668,750. This reduced the Hornets’ cap room to $565,991 to offer to a free agent and $2,086,803 to use for trades into cap space. This is not materially different from operating at the cap in terms of which parts of the player market can be accessed.

Any trades or signings prior to this point would not have threatened the ability to match since the Hornets had maintained his cap hold, allowing him to be signed into a Bird exception. Rather, $4,090,790 in cap space evaporated.

Robin Lopez and Hakim Warrick

Days after the above let the air out of Hornets fans’ balloons, news broke that the Hornets were acquiring Robin Lopez and Hakim Warrick. In the deal, Minnesota acquired the second round picks they sent to New Orleans in the Brad Miller deal, Phoenix acquired a first round pick, Wesley Johnson, Brad Miller, and Jerome Dyson on his nonguaranteed deal.

This three-team trade was held up for a bit on an interpretation of the rule about a team acquiring cash. The $3,100,000 maximum had been reached by Phoenix in the Steve Nash deal. The pick to be sent to Phoenix that was originally agreed upon had the potential to turn into cash, and this was interpreted as a violation of the maximum. The deal was made legal by Minnesota and Phoenix removing such potential in a way that was acceptable to all parties.

In this deal, Minnesota cleared even more salary at the expense of a first round pick, Phoenix essentially paid cash (directly and in Miller’s dead salary) for a first round pick and swapped one underperforming player they were less interested in for one with more potential to fit into their rotation.

From the Hornets’ perspective, the net of these deals is that the Hornets lost Jack, and nonguaranteed players while gaining Lopez and Warrick. The deal would not have worked for the other teams without Miller being traded to the Hornets earlier since Phoenix wanted to lose Warrick since they were acquiring Johnson, and Minnesota was not interested in getting Warrick back since they were looking for cap space. Miller was acquired into space created by the Jack trade, so these three deals are inextricably tied.

The beauty of this deal-train lies in the foresight and planning, the flexibility created by the use of cap space even after it had been lost, and the creation and use of leverage with the players. The deal created a window that limited the first-year salary of Lopez, for instance.

Additionally, the lack of interest in Lopez combined with the fact that best offer available to him was the qualifying offer from Phoenix seems to have led to a deal for Lopez that is only guaranteed in the first year, preserving cap space for next offseason should that be the preferable option. Lopez’s deal’s $4,899,293 first-year salary is the maximum allowed under the trade with the Dyson throw-in, given that Warrick would be eating poboys next season. Without this addition, the first year salary would have been below Lopez’s qualifying offer. Offering more money this year with the chance to get picked up with the maximum allowed raises likely enticed Lopez into agreeing to the sign-and-trade.

Warrick’s deal is nonguaranteed next season. Thus, the expiring Jack was replaced by players who may be more useful who can be expiring or not, whichever is deemed more advantageous. Options. Not contract options. Real Options. In case you didn’t notice, Dell’s deadliness increases exponentially with options.

Dyson remains with the team and can not return to the Hornets until the 2013-2014 season even if waived.

Current Picture

After adding Roger Mason using a Minimum Player Salary exception, the team goes to 11 players with guaranteed salary, with and Darius Miller and Lance Thomas pushing the roster to 12 and a nonguaranteed assuming Miller gets the minimum deal for 2 years, which seems to be standard.

The team can fill out the roster with more Minimum Player Salary exceptions or using the Room exception worth $2,575,000. Either exception can be used to sign players to one-year or two-year deals. The Room exception can be split among players, but it can not be combined with other exceptions.

So, what you see is what you get: A young team with some talent, some risks, some growing to do, little continuity, a new house that is still `settling’, and an effective salary cap of $44,573,993 due to the Rashard Lewis trade, or the Ariza and Okafor deals, depending on your perspective.

This team will show flashes of greatness and should show steady improvement, but it will be weighed down by the past if nothing else.

The chains will come off next offseason, and just in time. The NBA will be undergo a CBA aftershock with new rules coming into play next offseason, and the Hornets will have a great deal of flexibility going forward.

Looking Ahead

Assuming the Hornets do not commit salary to any players beyond this season except for Darius Miller on a minimum deal, which is a big assumption, the Hornets can essentially dial in the cap room they desire based on the market and the level of play this year.

Speaking of the assumptions, the following assume the cap remains unchanged for next season, which is unlikely. Rather than project, this season’s cap will be assumed. In many cases, a “rising tide” effect will nullify the importance of the changes. The stickier points will be noted. Other assumptions include me not screwing up and having selected the appropriate data from the following sites: Hoopsworld, HoopsHype, ShamSports.

Lastly, the effects of the Hornets draft picks are ignored since the number of picks could change and there is a range of possible values. Since the point of the following is to look at cap space, any nuisance draft picks can be dealt away in all likelihood if there is a good reason for the team to send one out.

If they retain all players with options, they will enter the offseason with 11 players and $5,736,884 to offer to a single free agent and $6,327,064 in room to take players in trade. This is not very much room at all, but if they are happy with the roster, then why should they make moves? Still, this is unlikely.

If they give up Warrick and Henry, they will enter the offseason with 9 players and $11,957,893 in room for a single free agent or $13,428,433 to take players in trade. These numbers will be close to a maximum deal for players with less tenure. Giving up another player can make room to seal the deal. This will be sensitive to salary cap changes.

If they give up all nonguaranteed salary, they will enter the offseason with 5 players on the roster and $22,516,724 to offer to a single free agent or $25,947,984 to take players in trade. This is an amount that will make the Hornets capable of offering a max deal to any NBA player. Note well that a player can be offered 105% of their previous salary even if that amount exceeds the calculated so-called maximum salary.

These are clearly not the only routes that can be taken, but they represent the reasonable extremes and mid-case based on today’s data. These projections are, again, predicated with a number of assumptions. These assumptions will gain some definition as the season progresses, with the team options for next season needing to be picked up this October.

I'm about a month late in catching up on this reading, but kudos on the piece Jason, very informative.
It must have taken a Herculean effort to put all of the thought-processes and financial considerations into a logical, readable form; you've done an excellent job.
'Watch Closely as I turn Jarrett Jack into a follically-blessed Starting Center' - this magic trick really was the Demps GM piece de resistance, if only for the Machiavellian maneuvering involved.
As to the argument of whether Benson could/should have eaten Okafor's contract.. to be in a position to sign Anderson in July would have necessitated an immediate buyout, in turn meaning a $27 million payout (less a Brand/Scola-style amnesty discount), correct?
To play Devil's advocate, if Benson had really wanted to be Uncle Scrooge, he could have just retained Okafor and Ariza and made them 'earn' their combined $40 million over the next two seasons. One might reasonably argue that such an (in)action would have resulted in a year or two being wasted as far as building a real contender was concerned. Buying out Lewis's contract was perhaps a smaller sacrifice than swallowing Okafor's, but it was nevertheless a notable gesture..
All things considered, I'd argue (as I think that you have) that ownership and management plotted a very reasonable course- we were able to make a key re-signing (Gordon), a long-term acquisition (Anderson), a necessary short-term acquisition (Lopez), and yet still be in a position to make at least one quality addition in 2013- not bad at all. One more trip to the lottery might altogether not be such a bad thing either, long-term (that last part was whispered).
"So, what you see is what you get: A young team with some talent, some risks, some growing to do, little continuity, a new house that is still `settling’, and on an effective salary cap of $44,573,993" ..
- and that's just it. Great writing, succinct! Would have made a great title ;)

Jason,
Great article.
As far as "Looking Ahead" goes, Warrick ($4.65M) will be gone after this season. Knowing how Dell works, who else will be gone (Henry, etc.) will depend on what Dell thinks it will cost to sign a quality PG or SF and what Dell thinks of the current Hornet in question. This last part is the part that bears watching in 2012-13.
For example, Henry's $3.2M 2013-14 team option looks steep. The question is this: is Henry's production worth about $2.2M more than a fill out the roster minimum salary player? If so, Dell will more likely exercise Henry's option. If not, Henry is likely gone. The other thing that could cause Dell to trade an optioned Henry, or not excercise Henry's option, is the pricing for quality available players. If losing Henry allows a quality PG or SF to be signed/acquired, Henry is likely gone just like Ayon.
We won't know pricing and availability (to the Hornets) of players. So all we can do is watch and evaluate our players like Henry and Aminu.

This is a little more complex than made out given when those rookie options need to be oicked up... this October. The decision for next year must be made, essentially, before this regular season.
I agree that Warrick is likely gone, and given the Henry comments, him, too. Aminu can get picked up and traded, maybe.

Yeah, that is the dicey part for Dell. He has to make his decision on players like Henry, Aminu, and Vasquez (in October) based on things he sees and we don't. Then we see them play after the decision is made and, possbly, second guess Dell. The only way Dell gets a second chance after the 2012-13 season is if he doesn't pick up the option on a player and signs him for the 2013-14 season after he plays well.
For other players (like Lopez), Dell has all season before deciding what to do with them in 2013-14.

Michael I saw how you tweeted that getting cp3 was a realistic possibility. That sounds great but wouldn't that cause a problem in 4 years when we'll be as you and Ryan said "showing our teeth" and Davis' rivers' and Gordon's contracts are up. How could we afford that when Davis will likely be drawing a Max and rivers should see a raise and Gordon, if he remains somewhat healthy, could draw a raise as well?

the Lakers can make those deals because:
1.) Bird rights - Lakers have bird rights for Kobe, Gasol, & Bynum, so their contracts were able to exceed the salary cap. When Bynum was traded for Howard, their salaries matched up, so the trade was legal.
2.) Trade exceptions. The Lamar Odom salary dump, that was crushed by everyone last year, turned into Steve Nash via trade exception. that's one way to exceed the cap.
3.) Mid level, mini mid level deals - These exceptions also allow you to exceed the cap. Antwan jamison is on a mini mid level, and Artest is on a mid level.
The Hornets will be able to make moves like this eventually, such as when Anderson, Gordon, Davis, Rivers, etc. are all up for extensions.

Was checking out Hoopsworld's list of 2013 FAs. If Okafor doesn't sign an extension with Wizards could we re-sign him next summer on the cheap?
I was looking forward to having he and Davis in a defensive-heavy frontcourt before he got traded.

After all the moves, looks like we're a PG & a wing away from complete. Next year we have cap space for a max guy plus our 1st round pick, which figures to take care of that. Add in a little maturity & muscle for our teenagers, who by the way were ranked # 1 & # 2 overall coming out of high school a couple of years ago, and the picture is very bright. WWDD? Damn good is what.

Jason, Thanks for making all the math and moves more understandable. I truly think that Dell never makes any move in a vacum, but is always looking ahead to the next potential move. My only question is, after all of this thoughtful analysis and hard work, I look up the Lakers salaries and see that they top out just under $100 million. So Dell works his ass off and the Lakers just keep spending more and more money. What the heck?

Great breakdown that is sure to make some heads spin.
But my argument with the Emeka/Ariza trade has always been as follows:
I don't care what the owner has to pay behind the scenes. Just like I don't care about what he has to pay to scouts, half time entertainment, marketing, arena improvements, etc. None of those things count against the salary cap. Therefore, the best play, in my opinion, purely from the viewpoint of building the best roster possible, would have been to trade Ariza for a 2nd rounder or a Brad Miller type contract and using the amnesty on Okafor. That puts us in the same position next year relative to space (but minus D. Miller-oh no!) and would have given us 13+ mil in additional space this year.
Now Benson would have to pay more in that scenario, but why should I care about that as a fan or analyst?
If Demps was told to make moves with overall cost in mind, and not just cost pertaining to the salary cap/lux tax, then he did the best he possibly could under such constraints. But if owner money was no object, that extra space would have come in mighty handy.

Michael,
Whether you care or not, an additional seven figure cost to an owner is always a factor in any professional sport. It may be less of a factor on some teams than others, but it is still s factor. For small market NBA teams with limited ability to earn dollars on local TV rights, seat licences, etc., an additional seven figure cost to an owner is HUGE. Aside from ignoring this cost, it is very hard to criticize the Lewis trade.

But it can't be both- you can't say it is ALWAYS a factor, and then basically say that it is not a factor to big market teams.
This is my frustration, and it is more with the NBA than Benson or Demps. It's that they aren't all playing by the same rules. If you and I start a game of Monopoly, we have equal chances to win because we are playing by the same rules. NBA teams are not.
A team with money would have done it the way I wanted it to be done and had 7-13 mil extra to play with this offseason, but the Hornets are not playing by that set of rules. That, more than anything is what bothers me.
As I said, if Demps could not play by the big biy rules and amnestying Oak wasn't an option, then of courst that was an A+ trade. But, that doesn't mean that I can't wish we could play by those rules

Looking at the alternatives, the Lewis deal guaranteed not Ariza or Okafor next offseason. Using the Amnesty and relying on a salary dump risks not being done or consuming a first-rounder, see Minnesota.
So, keeping the focus on next offseason, the Lewis move is superior. For this offseason, it's conceivable that a more aggressive strategy could have been used, but the way the Summer played out makes me doubt it.
Do you think we could have Amnestied Ariza then dumped Okafor next season (similar to Lewis move) or vice versa (even more room)?

IMO, at worst, you could amnesty Okafor and not be able to deal Ariza this year- then he opts out next year because he believes he can get a multi-year deal from a team who actually wants to use his services. Never discount the pride angle when it comes to players. And we also saw a precedent set w/ G Wallace and Richard Jefferson- two average to slightly above average SF's who opted out of final year to secure a nice long term deal.
That would put the Hornets at the same place next offseason and would have given them an extra 6 mil this offseason.
Or how about the stretch provision? Using that, the Hornets could have stretched Ariza's 15 million out over 5 years- giving themselves 10 million more this year, and 3 mil less next year. Again, this is worst case scenario, because I think that sometime between July and Feb traded deadline, the Hornets could have moved Ariza for an expiring at the very least.
Again, it is a great job by Dell, but I think we are giving Benson a pass here because we are used to even cheaper owners. Fact is, the Lakers, Mavericks, Knicks, etc. would have amnestied Okafor and have given their GM more room to play with, but we don't have an owner with that kind of money

I'm not sure we can stretch Ariza. I can't tell if the stretch only applies to new cpntracts or not.
I just see this as a guaranteed outcome vs a risk of not having full cap space next season, but I'm pretty conservative in that regard.

Trackbacks

[…] positive light, especially here at Hornets247. From the day he took the job back in July of 2010, Demps has arguably been one of the league’s most active and hard-working general managers, consistently finding ways to improve the roster. Throughout his tenure, he has notoriously made […]